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New regulations likely to spur more oil and gas M&A



The US oil and gas sector could soon see a raft of merger and acquisition (M&A) activity as a result of the new regulations brought in following the Deepwater Horizon oil spill in the Gulf of Mexico.

A new piece of research carried out by independent oil and gas industry technical advisory, GL Noble Denton, has highlighted that smaller companies are likely to find it difficult to comply with the regulations and will look towards consolidation with larger companies in order to mitigate their regulatory burdens. The research, entitled Reinventing Regulation: The impact of US reform on the oil and gas industry, has shown that energy industry professionals throughout the US are less ready to take risks amid the current state of the industry and are seeking means of tackling the growing problem of rising costs.

GL Noble Denton sought the opinion of more than 100 senior oil and gas professionals with operations in the US during March and April 2013, and carried out in-depth interviews with ten industry analysts and academics.

The headline findings of the report include the figure that 85 per cent of the respondents are expecting the US regulatory regime to get a lot tougher in the next two years. Some 78 per cent said that the regulatory changes will generate greater administrative workloads, while 82 per cent believe that compliance costs will rise significantly. Crucially, 57 per cent think that the need for greater compliance spending will in turn force more M&A activity, in order to create larger entities that are more capable of withstanding and meeting regulatory requirements.

GL Noble Denton’s Executive Vice President for the Americas, Arthur Stoddart, said that the strong regulatory reaction to the oil spill was inevitable and, while the new regulations will certainly be challenging for the industry, they are crucial steps to prevent future similar disasters.

“As the new rules continue to come into force over the next two years, the sector will need to adapt to survive in a new climate,” he explained. “Increasing compliance costs, burgeoning legal risks and a greater administrative workload are just some of the effects that industry professionals expect to encounter. Our research shows that smaller oil and gas companies operating in the US are most likely to feel the impact of these burdens.”

The Deepwater Horizon oil spill – referred to in the report as the Macondo oil spill, due to the Deepwater Horizon’s location on the Macondo prospect – is considered to be the largest accidental marine oil spill in the history of the petroleum industry. It released an estimated 4.9 million barrels of crude oil into the Gulf of Mexico over 87 days after the Deepwater Horizon exploded and sank in April 2010. It also claimed the lives of 11 workers on the rig.

The incident prompted one of the most extensive reforms of offshore oil and gas regulation in US history. Among the new requirements for offshore operators are stringent measures governing blowout and worst-case discharge plans, including subsea secondary blowout preventer (BOP) intervention and extensive testing. Companies must also provide corporate compliance statements and reviews of subsea blowout containment resources for deepwater drilling, and also maintain comprehensive safety programs, incorporating performance-based standards for operations, including equipment, safety drills, environmental safeguards and management oversight.

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